Sunday 14 August 2011 12.57 EDT
First published on Sunday 14 August 2011 12.57 EDT

Culture secretary Jeremy Hunt will fire the starting gun on the race to turn Britain's internet "not spots" into hot spots this week by allocating a £530m fund for broadband-starved communities. Cornish fishing villages, Welsh valleys and Cumbrian farmsteads will all have access to high-speed internet within four years if telecoms companies add their money to the state pot and consumers show interest.

Hunt is expected to announce how the money, diverted from the BBC to create a digital Britain, will be shared among 40 areas including English councils, Scotland and Northern Ireland. A further £300m has been promised after 2015.

The government wants all 25m UK homes to have access to a minimum speed of 2Mbps (megabits per second), which would mean that reading web pages, making Skype phone calls or watching TV catch-up services, such as the BBC's iPlayer, will all be possible from the most remote cottage. If all goes to plan, 90% of homes will be able to get even faster speeds of over 24Mbps, enough for several computers to download video simultaneously on a single line.

The BT Group has already promised to spend its own money getting superfast, fibre-optic broadband to two thirds of households by 2015, without government help. This will cover the towns and cities, where BT can quickly recoup its £2.5bn investment. Getting broadband to those villages and valleys will be less economical, however, with lines having to stretch longer distances to reach fewer people. So will the two tranches of public subsidy, totalling £830m, be enough to reach the final third?

Where BT wins council contracts backed by the government, it is offering to match the money and it expects councils to as well, by securing other subsidies, so that just under £2.5bn should be available for the final third. The BT executive responsible for leading 19,000 engineers in building what will be the UK's largest fibre network is Olivia Garfield, chief executive of its Openreach division, which rents out BT's network to other internet providers such as BSkyB and TalkTalk. She believes universal broadband access can be achieved, but only if a mix of technologies and every available resource is used, from telegraph poles to mobile phone masts and Virgin Media's cable network – which unlike BT's infrastructure is currently off-limits to rival companies.

"It's whether you believe that the most important thing is to roll out fibre at speed in the UK to help recover from economic recession," says Garfield.

The problem is that even in neighbourhoods where BT does not have to dig up the road to lay fibre, because it already has ducts carrying its copper wires, many of those ducts are blocked or broken. If those ducts happen to serve one of the 12m homes where Virgin Media has cables, Garfield says BT will not lay its own fibre. This means many homes will have only one choice of high-speed internet supplier, which in turn threatens higher bills.

Allaying fears that Hunt's announcement will not go far enough, some regions are ensuring that government subsidy will not have to cover every rural area in the UK. Cornwall has already raised £132m to reach up to 90% of homes by 2014. BT is building the network and providing £79m of the funding, the rest is coming from Europe. Northern Ireland is well on its way, also with BT. Some smaller areas, such as the Angus Glens, have attempted to go it alone (see box).

But there are dangers for those who decide to build without BT. Hull is one of the few areas in the UK where the phone network has always been owned by the council, not BT, and broadband penetration there is lower than the national average.

For an internet service provider such as TalkTalk or BSkyB to link in to the local network requires an outlay for equipment and software, and a separate negotiation over price. Many prefer the simplicity of dealing with one network nationally, which means BT.

Of the government's £530m pot, around £150m has already been committed to Wales and a number of English counties including Wiltshire, Norfolk, North Yorkshire and Cumbria. A further 40 areas, as well as Northern Ireland and Scotland, are likely to hear this week how much they will be allocated.

BT is not guaranteed to win all the new contracts. Fujitsu, the Japanese electronics firm, has offered to reach 5m homes in three to five years, if it beats BT to secure around £500m in government subsidy. Both BT and Fujitsu will be hoping that councils club together to appoint one main contractor, allowing for economies of scale. Declaring his interest earlier this year, Fujitsu managing director of network solutions Andy Stevenson said: "We don't want to end up with 40 fragmented networks so it makes sense for regions to come together." However, fibre cannot reach everywhere. Tim Watkins, head of sales for western Europe at Chinese telecoms firm Huawei, which would like to supply equipment for the network, says the final 10% will be reached by a combination of satellite and mobile phone masts. "If you want to deliver high-speed broadband services to rural areas with six farmers, it's never going to be achieved with just fibre."

But carriers will have to take a mature approach and agree to share equipment in remote locations. Broadband expert Ian Watt at Enders Analysis believes the government funds will only get broadband to three-quarters of homes. "It's more likely that high-speed broadband will be available to the centre of the village, for example to a school, library or post office. We don't see the subsidy being enough to get it to everyone."

Garfield doesn't claim to know what will trigger demand, but believes it will come. "There is evidence that once you have access to it, the minute you've seen the new world, you would never go back. So, I don't believe there is a lack of desire, but it is a premium product, it will never be the de facto normal product," she says. Speed can be addictive. It is also of the essence if the government's dream of creating Europe's first extensive fibre network by 2015 is to become a reality.

Case study: going it alone

Nestling at the foot of the Cairngorm mountains on the east coast of Scotland, the inhabitants of the Angus Glens tend to make their living from hill farming and gamekeeping. But some commute to Dundee, where hi-tech industries, like biotechnology and computer games, are among the biggest employers. With 2,400 properties across a 500 mile area, and the more remote telephone exchanges serving fewer than 100 lines, there is little likelihood of BT or another major carrier building a fibre broadband network.

When lecturer Geoff Hobson moved to the area in 2007, he concluded that if the Glens wanted a fibre network, they would have to install it themselves. The Angus Broadband Co-operative was created to raise money and provide a community ownership model. The need for better broadband infrastructure is acute. A survey last year showed that 9% of properties had no internet connection at all, while 5% had only a dial-up service. Three quarters had fixed-line broadband but of those 67% reported speeds lower than 2Mbps, the minimum needed to allow quality home working. Meanwhile, a third of local homes are used for some form of business activity.Hobson says: "If you try watching a programme online it can just give up, particularly when it's busy in the evening." With two school age children, the family's need for bandwidth will only increase.

A nearby hill farmer, whose wife is disabled, has to shop online, and her husband needs the internet to fill in government forms. But they have only dial-up access, which means no phone calls while they are using the web.

Another neighbour, a games developer who works from home, has to shuttle to and from the office with CD-Roms because he cannot send material online.

"We decided to going for a fibre network because it would be future-proof. We got some funding and drew up a plan for how to lay the cables: £9.5m is the lowest quote so far. We weren't expecting such a large figure," says Hobson. The Co-operative has approached BT about sharing its ducts, which would bring down the cost. "They appear very helpful when you have meetings and run out to be very unhelpful when they send a written response."

Hobson is waiting to hear whether his area will be included in an east of Scotland bid for government subsidy.